Despite It All, How Is the U.S. Still So Rich?

Our economy's struggling, our schools are middling, and yet...

Debate has been raging in recent days about American exceptionalism (one example). Meanwhile, the Human Development Report rankings have come out, placing the U.S. 4th, behind Norway, Australia, and New Zealand, but ahead of Canada, Sweden, and other countries thought to have more generally equitable, comfortable lives. So at the intersection of these two items, an interesting new discussion has developed: why is the U.S. as strong, economically, as it is? Here are a few ideas.

• Actually, the U.S. Is Exceptional on This List--For Being Big  The "increasingly common intuition," explains Reihan Salam, who kicks off the debate at National Review, is "that small countries often out-perform big countries." So how is the U.S. doing so well? "One could argue that the U.S. out-performs because of our natural resource endowments, but that seems unlikely; Norway and Nigeria are both rich in hydrocarbons," but one ranks 1st and the other 142nd. "It could be that high quality of our public institutions, but of course many states in northern Europe outdo us on that front, as does Singapore." Salam says he has his "pet theories," but declines to divulge them. One other note on inequality in the U.S.:

Some will object the U.S. has a high level of wage dispersion. But remember that more educated societies tend to be more unequal, and that the U.S. achieved high rates of secondary school completion before virtually all other advanced market democracies.

• 3 Reasons America Is 'So Great'  First, "the common law"; second, "massive immigration"; and third, "the great scientific exodus during WWII," declares Karl Smith at Modeled Behavior ("I am going to go pretty conventional on this one," he writes). "Four of the top five countries in the Human Development Index have the Common Law and the top, Norway, is a awash in oil," which helps boost its ranking. "You'll also notice that 3 of the top 4, again with Norway the odd man out, are immigrant nations." Smith adds that while "the bonus from the great exodus is definitely waning" in the States, the fact is that "there is no fundamental reason why the US should be the center of the scientific world but for a time it was the only place in the world safe for many scientists."

• This Is a Complicated Question  "America jumped to a huge productivity lead early last century by developing a resource- and capital-intense, high-throughput style of manufacturing producing mass market goods," contributes The Economist's Ryan Avent. The fact that Europe had to catch up here is part of why the U.S. is still ahead. But, continues Avent, "there's also the question of what exactly one is comparing. What if we take similar European and American metropolitan areas and adjust for human capital and hours worked? On that basis, the difference between America and northern Europe looks relatively small." He also adds that market size "may be more important than we imagine." Not only do four of the five top countries "share the Common Law. They also speak English."
  

Common rules, culture, language, and so on facilitate high levels of trade and mobility. National and cultural barriers within Europe, by contrast, work to limit the extent to which the economic potential of the continent can be reached.

Mr Smith also gets at something important in discussing immigration and talent. The economic geography of the world is lumpy, and talent likes to clump together into centres of innovation.